PRSI refund on pension contributions

[Glenbhoy]

In 2003 and 2004 I had PAYE elements to my income, whilst I am not allowed to deduct pension contributions before calculating my self employed PRSI, I was informed that since I also had PAYE income in those years I could claim the pension as an allowable deduction on that income, so I duly completed the forms and posted them off a while ago.
The revenue sent me out a cheque re my claim for refunds for 2003/04 yesterday.
No explanation as to how they arrived at the figure, but it was half the amount I was expecting, I called them and the lady I was talking to tried to explain the rationale, but it was difficult to understand over the phone in a very short space of time, but she did tell me they don't send people out calculations as that would be too time consuming, anyway, for what it's worth here is what I thought I'd get and what they actually paid me:
2003: Gross Salary - €31,971, Pension paid - €4,000 - i reckoned that I was due 6.5% of the contribution or €260
2004: Gross Salary (PAYE element) - 10,510.85, PRSI paid €590, Tax paid €2689, Pension paid - €6265 - refund I thought I was due was 6.5% of the contribution or €407.

They paid me €305 in total for the 2 years.
What I want to know is:
1. Am I working on the wrong basis for calculating this refund - ie are the refunds 6.5% of total etc?
2. Are pension contributions for employees not deducted in full before calculating PRSI payable?

 

[ClubMan]

The revenue sent me out a cheque re my claim for refunds for 2003/04 yesterday.
No explanation as to how they arrived at the figure

Yeah - that's really annoying. I had to write to them to explicitly ask them for an explanation.

but it was half the amount I was expecting

It may already be explained here. I found it confusing too at first but eventually got my head around it. In short, if you earned over the employee PRSI contribution threshold of c. €44K last year then you only get 2% health levy relief on some or all of your contributions and not the total 4% PRSI + 2% health levy = 6%. That might explain things? See this specific post.

I thought I was due was 6.5% of the contribution or €407.

Where does the 6.5% come from? I presume you mean 6% (4% PRSI + 2% health levy)?

2. Are pension contributions for employees not deducted in full before calculating PRSI payable?

They are but you don't necessarily get 6% relief on them as mentioned above and in the linked thread.

 

[Glenbhoy]

Cheers Clubman, that pretty much clears it up, it is ridiculous that they won't provide a calculation, apparently each calculation is done manually!!
Anyway it all just serves to further my belief that PRSI is retained purely for accountants benefits, without this bizarre and often mystifying 'social insurance' the self assessment system would be simple and rational, and it would in fact be possible to assess one's self, but as it is, one does need an accountant at times (especially the new 2.5% above 100K).
It really is time for a complete overhaul of the various rates, exemption limits and levies that built up higgedly piggedly over the years in an effort to try and pretend to people that their taxes are lower than they are.
It's a bit like a tax I came across in Italy, they have 2 rates of corporation tax there, IRAP and IRPEG, one local and one national. Now the rates were 40% for IRPEG (national) and 4% IRAP (local), so the thinking was that multi-nationals would presume their overall tax was 44%, however those sneaky italians had a hidden surprise, IRAP had so many normal deductibles not allowed that it was effectively a tax on gross profits, meaning that many companies effective tax rate was over 60%!!

 

[ClubMan]

Cheers Clubman, that pretty much clears it up, it is ridiculous that they won't provide a calculation, apparently each calculation is done manually!!

I was surprised to also just get a couple of refund cheques with nothing to indicate what they were for (if I recall correctly) or how they were calculated (definitely not). I was also expecting 6% of whatever figure back but hadn't counted on how the whole employee PRSI threshold issue would impact this and result in a lower refund. To be fair, when I wrote to Revenue about it they did issue a detailed explanation. But some sort of simply balancing statement would probably save people hassle and confusion.

 

[allendog]

Having had commenced pension contributions since Jan 2006, (total: E3,650 in 2006), I applied to the PRSI Refunds Section, Revenue in Limerick, only to receive the letter as follows:

're your applic for PRSI refund in respect of yuor private pension payment, please note that I am unable to deal with it, as in order for refund of PRSI to be allowed on private pension payment, tax relief must have been granted. You should contact your local tax office .... Once tax relief has been granted, please notify me ...'

I'm quite baffled about that, as the pension plan provider had explained to me that tax relief had already been granted at source (i.e. my total pay in 2006 had been reduced to reflect that). Should I contact the local tax office as suggested in the letter?
allendog

 

[ClubMan]

I'm quite baffled about that, as the pension plan provider had explained to me that tax relief had already been granted at source (i.e. my total pay in 2006 had been reduced to reflect that).

Normally when making pension contributions via payroll the pension contributions are deducted first and only then are tax and PRSI/health levy deductions calculated thereby granting you pension tax and PRSI/health levy relief at source. You say that you got tax relief at source so presumably you also got PRSI/health levy relief there too already?

 

[allendog]

Thanks, Clubman, for casting light on that bit - you're a wizard! Will check it out with Payroll if that's the case.
allendog